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Decentralized Market Processes to Stable Job Matchings with Competitive Salaries

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Author Info

  • Bo Chen

    (Department of Economics, Southern Methodist University)

  • Satoru Fujishige

    (Research Institute for Mathematical Sciences, Kyoto University)

  • Zaifu Yang

    (Department of Economics and Related Studies, University of York)

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Abstract

We analyze a decentralized trading process in a basic labor market where heterogeneous firms and workers meet directly and randomly, and negotiate salaries with each other over time. Firms and workers may not have a complete picture of the entire market and can thus behave myopically in the process. Our main result establishes that, starting from an arbitrary initial market state, there exists a finite sequence of successive myopic (firm-worker) pair improvements, or bilateral trades, leading to a stable matching between firms and workers with a scheme of competitive salary offers. An important implication of this result is that a general random process where every possible bilateral trade is chosen with a positive probability converges with probability one to a competitive equilibrium of the market.

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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 749.

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Length: 28pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:kyo:wpaper:749

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Keywords: Decentralized market; job matching; random path; competitive salary; stability.;

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  1. Fuhito Kojima & M. Ünver, 2008. "Random paths to pairwise stability in many-to-many matching problems: a study on market equilibration," International Journal of Game Theory, Springer, vol. 36(3), pages 473-488, March.
  2. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882, October.
  3. Atila Abdulkadiroglu & Tayfun Smez, 2003. "School Choice: A Mechanism Design Approach," Discussion Papers 0203-18, Columbia University, Department of Economics.
  4. Diamantoudi, Effrosyni & Miyagawa, Eiichi & Xue, Licun, 2004. "Random paths to stability in the roommate problem," Games and Economic Behavior, Elsevier, vol. 48(1), pages 18-28, July.
  5. Ning Sun & Zaifu Yang, 2009. "A Double-Track Adjustment Process for Discrete Markets With Substitutes and Complements," Econometrica, Econometric Society, vol. 77(3), pages 933-952, 05.
  6. Bettina Klaus & Flip Klijn, 2004. "Paths to Stability for Matching Markets with Couples," Working Papers 156, Barcelona Graduate School of Economics.
  7. Demange, Gabrielle & Gale, David & Sotomayor, Marilda, 1986. "Multi-Item Auctions," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 863-72, August.
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Cited by:
  1. Klaus, Bettina & Newton, Jonathan, 2014. "Stochastic Stability in Assignment Problems," Working Papers 2014-05, University of Sydney, School of Economics.
  2. Emiliya Lazarova & Dinko Dimitrov, 2013. "Paths to Stability in Two-sided Matching with Uncertainty," Working Papers 2013.02, Fondazione Eni Enrico Mattei.
  3. Bary S.R. Pradelski, 2014. "Evolutionary Dynamics and Fast Convergence in the Assignment Game," Economics Series Working Papers 700, University of Oxford, Department of Economics.
  4. Bettina Klaus & Frédéric Payot, 2013. "Paths to Stability in the Assignment Problem," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 13.14, Université de Lausanne, Faculté des HEC, DEEP.
  5. Newton, Jonathan & Sawa, Ryoji, 2013. "A one-shot deviation principle for stability in matching problems," Working Papers 2013-09, University of Sydney, School of Economics, revised Mar 2014.
  6. Péter Biró & Gethin Norman, 2013. "Analysis of stochastic matching markets," International Journal of Game Theory, Springer, vol. 42(4), pages 1021-1040, November.

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